Return on investment, or ROI, measures the gain or loss obtained relative to the cost of an investment. It provides a quick percentage measure of a project’s profitability.
The Bethemesh ROI calculator automatically calculates total cost, net gain and ROI.
ROI formula
Total cost = initial investment + additional costs
Net gain = gains generated − total cost
ROI = (net gain / total cost) × 100
With an initial investment of €10,000, €1,000 in additional costs and €15,000 in gains, total cost is €11,000 and net gain is €4,000. ROI is therefore about 36.36%.
How to interpret ROI
An ROI above zero means gains exceed costs. Zero corresponds to break-even, while a negative ROI indicates a net loss.
A 25% ROI means every euro of total cost produced about €0.25 in net gain. A 100% ROI means net gain equals total cost.
Simple ROI or annualized ROI?
Simple ROI ignores duration. A 40% ROI achieved in one year does not have the same economic meaning as the same ROI achieved over five years.
When duration is known, a compound annualized return can be estimated:
Annualized return = (gains / costs)^(1 / number of years) − 1
This assumes a regular compound progression and is therefore a comparison indicator rather than a reconstruction of actual cash flows.
For investments where interest is actually compounded, use the compound interest calculator.